Company expects healthy sales growth in 2017 after sharp fall in profits last year
Swatch Group has spotted an end to the sharp downturn in the Swiss replica watches industry after sales fell more than 10 per cent last year and net profit almost halved.
The company, whose brands include replica Omega and Blancpain as well as mass market Swatch products, said on Thursday that the final two months of 2016 and the start of 2017 had seen “very good growth” in fake watches and jewellery revenues, especially in mainland China. Swatch expected “healthy growth” in sales in local currencies in 2017, it added.
Swatch reported net profit had fallen 47 per cent to SFr593m last year, while sales dropped 11 per cent to SFr7.55bn. The “poor” figures reflected “what was happening in the industry last year”, said Jon Cox, analyst at Kepler Cheuvreux.
In 2016, Swiss watchmakers had their worst year since the global financial crisis, with exports falling 10 per cent, largely as a result of weakness in Hong Kong and the US, the industry’s two biggest markets. Sales to Chinese buyers have been hit in recent years by a corruption clampdown in the country, while consumer spending on luxury goods in Europe has been damped by terrorist attacks.
But Nick Hayek, Swatch chief executive, has argued the downturn does not represent a crisis for the industry — and is largely the result of globetrotting consumers increasingly choosing to buy where prices are cheapest.
“The environment is improving but it is still going to be a choppy year,” said Mr Cox. “If you look at some of the company’s past outlook statements, its comments for ‘healthy local currency growth’ look actually quite cautious.”
In early European trading, Swatch’s shares were down 3 per cent at SFr339.9, reflecting how its 2016 results fell short of analysts’ expectations.
Swatch reported “double-digit” sales in local currency in the UK, after June’s referendum vote to leave the EU sent the pound sharply lower — as well as the cost of luxury replica watches to overseas buyers in London boutiques.
Swatch’s optimistic outlook has meant it has held back from dramatic steps to cut production.
On Thursday it said a reduction of 600 to 35,700 in its workforce last year was “solely due to normal fluctuations”.
By contrast Richemont, a rival Swiss luxury goods group, has cut jobs and sought to reduce inventories by buying back stock and destroying it.
Johann Rupert, Richemont’s wealthy founder, has also responded to the downturn by overhauling the group’s leadership structure.
Swatch said sales in Hong Kong had normalised in recent months, while demand in mainland China had picked up.
Other Asian markets had also recovered, while the Middle East had recorded “double-digit growth”. Swatch’s expectation of “healthy growth” in local currencies in 2017 applied to the US and Europe, it said.